Futures are flat after trading in a narrow overnight range, with small-caps outperforming. As of 7:45am ET S&P futures are up 0.1% at 5,581, after last week's face-ripping rally which pushed the S&P to within 2% of the all time highs, while Nasdasq futures are unchanged as Mag7 and Semis start the week lower but broad-based strength is limiting losses. Bond yields are 1-2bps lower while broad dollar weakness sees USD/JPY re-test 145 level before rebounding back above 146, while WTI crude oil futures drop around 1%, underpinning Treasuries. Commodities are lower with Energy and Metals weaker while Softs are catching a bid. This week is expected to be a low liquidity week with events centered around the DNC and Jackson Hole with NVDA earnings looming next week. The macro data focus is on Flash PMIs, Housing Data, and Regional Activity updates. Fed Minutes are not expected to be catalytic with Jackson Hole kicking off on Aug 22. Q2 earnings season approaches its close with consumer-related / Retailers earnings this week and NVDA next week.
In premarket trading, AMD shares rose 2% after the company agreed to buy server maker ZT Systems in a cash and stock transaction valued at $4.9 billion, adding data center technology that will bolster its efforts to challenge Nvidia. Shares in European defense firms including Rheinmetall AG tumbled after a report that Germany will no longer grant new requests for aid to Ukraine as the government seeks to rein in spending. Here are some other notable premarket movers:
Traders are starting a relatively quiet week on a cautious footing after recovering risk appetite last week left the S&P 500 close to a record high. After the Aug. 5 swoon, some buyers are re-emerging to help the main US stock gauge recoup more than half its summer losses even as hedge funds are once again shorting the bounce (having done the same in most of June and July).
“Things have come back, things feel more measured now,” Louise Dudley, portfolio manager for global equities at Federated Hermes, said in an interview with Bloomberg TV. “In that medium term there is some volatility and we’re definitely looking to take advantage of some of those price moves. Some of the large-cap cap names are still offering some of the top-growth opportunities.”
The key event is slated for Friday, when Fed Chair Jerome Powell is expected to give fresh insights on the course of US monetary policy at the central bank’s Jackson Hole economic symposium in Wyoming. “We expect Powell to hold forth on the medium-term strategy for the Fed,” Seth Carpenter, chief global economist at Morgan Stanley, wrote in a note.
Soft-landing bets are also helping to drive the recovery in equities. Goldman Sachs at the weekend trimmed the probability of a US recession in the next year to 20% from 25%, citing last week’s retail sales and jobless claims data, just days after raising it from 15% to 25%. If the August jobs report set for release on Sept. 6 “looks reasonably good, we would probably cut our recession probability back to 15%,” Goldman economists led by Jan Hatzius wrote in a report to clients on Saturday.
Elsewhere, the Democratic National Convention kicks off Monday in Chicago as party officials and celebrities rally around Kamala Harris, who may or may not be an idiot.
European stocks inch higher with the Stoxx 600 up 0.1%, and looking to extend its winning streak to five sessions. Basic resources is the strongest performing sector, while technology and energy stocks are the biggest laggards. Here are some of the biggest European movers on Monday:
Earlier in the session, stocks in Asia advanced for a second session, helped by gains in regional currencies and a further rally in Chinese technology shares following some earnings beats. The MSCI Asia Pacific Index rose as much as 0.9% after jumping 2.5% on Friday. Japan’s Seven & i Holdings Co. was the biggest contributor to gains on the benchmark after a report on a buyout offer. Shares of Chinese e-commerce company JD.com extended a post-earnings rally.Equities in Hong Kong were among the top performers in Asia, with the Hang Seng China Enterprises Index closing up 1%. Onshore Chinese shares also rose. More cities have scrapped official sale price restrictions on newly-built homes, a step to allow steeper price declines to amid sluggish demand, the 21st Century Business Herald reported on Monday. Japanese stocks were an outlier, weakening as a stronger yen dimmed the earnings prospect of export firms.
In FX, the dollar slipped, with some traders unwinding bets on a return to the White House by Donald Trump. On the other end, the Japanese yen surged amid broad weakness in the US dollar as traders positioned ahead of key central bank events later in the week. Bank of Japan Governor Kazuo Ueda appears in parliament on Friday, and Federal Reserve Chair Jerome Powell speaks at Jackson Hole later the same day. USD/JPY is down 1.1% against the greenback at ~146.05, having dropped as low as 145. The Bloomberg Dollar Spot Index falls 0.3%.
“If we look at the polls, if we look at Harris’s solid performance in the last three weeks, the market has got to be thinking, were we hasty in putting on that Trump trade in June or July?,” Jane Foley, head of FX strategy at Rabobank, said in an interview with Bloomberg TV. “The market has to rethink that. If the market is less inclined to be putting on Trump trades, that could soften the dollar.”
In rates, treasuries hold small gains across long-end of the curve, where 30-year yields are ~1bp lower vs Friday’s close, as bunds outperform over early London session. 10-year TSY yields fall 2bps to 3.86% with bunds outperforming by 1bp in the sector and gilts trading broadly in line.
In commodities, oil prices decline, with WTI falling 1% to trade near $75.90 a barrel; oil declined for the fourth time in five sessions as traders tracked US-led efforts to secure a cease-fire in the 10-month old conflict in Gaza, while the Russia-Ukraine war is escalating. Spot gold falls $7 to around $2501/oz. Bitcoin falls 2%.
Looking at today's calendar, the data slate includes July Leading Index at 10am New York time; ahead this week are manufacturing and services PMIs and new home sales, and July 31 FOMC meeting minutes on Wednesday. Fed speakers scheduled for the session include Waller at 9:15am
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APAC stocks were mixed with a somewhat cautious tone amid geopolitical uncertainty after Hamas rejected the latest ceasefire proposal and as participants await this week's key events including the Jackson Hole Symposium. ASX 200 traded rangebound as outperformance in gold miners and utilities was offset by weakness in consumer stocks. Nikkei 225 swung between gains and losses and traded on both sides of the 38,000 level after mixed Machinery Orders data, while the index was then pressured again later in the session alongside a firmer currency. Hang Seng and Shanghai Comp. gained amid stimulus hopes after Premier Li hinted on Friday at targeted measures to smooth the economic cycle and promote consumption, while a recent report noted weak Chinese data raised the pressure for Beijing to provide support and revived talk of regarding the idea of China issuing shopping vouchers.
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European bourses, Stoxx 600 (+0.1%) began the week on a mixed footing and generally traded on either side of the unchanged mark. European sectors are mixed with the breadth of the market fairly narrow. Basic Resources takes the top spot, in a paring to some of the hefty selling pressure seen in the prior session. Healthcare is found at the foot of the pile, joined by Tech. US Equity Futures (ES -0.1%, NQ -0.1%, RTY +0.1%) are mixed and also trade on either side of the unchanged mark, ahead of what will be a catalyst packed week.
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FX
Fixed Income
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Geopolitics: Middle East
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US Event Calendar
Central Bank Speakers
DB's Jim Reid concludes the overnight wrap
As we move into the latter part of August, this week’s centre of attention for investors will be the Jackson Hole Economic Symposium that runs from Thursday evening through Saturday. Markets approach this in a much better mood than looked likely two weeks ago as the extreme volatility seen at the start of August seems almost a distant memory. The S&P 500 is on its best 7-day run since October 2022 (+6.82%) and has moved to within 2% of its all-time high, while the VIX ended last week at 14.80, down to below 15 for the first time in over three weeks. This comes as a 50bp Fed rate cut in September is now just over 30% priced, down from being fully priced on August 5 and 55% a week ago.
The overall title at Jackson Hole this year is “Reassessing the Effectiveness and Transmission of Monetary Policy” and central bankers will surely feel more satisfied with their policy levers than the last two times they met at the Wyoming retreat. The 2022 symposium came as inflation neared double digits across many developed economies with rates markets undergoing a sharp hawkish repricing, while a higher-for-longer focus saw Treasury yields reach post-GFC highs in the run-up to the 2023 gathering, with the 10yr yield then touching 5% last October. By contrast, this year’s event comes with US PCE inflation down to 2.5%, the unemployment rate up by 0.6pp since the start of 2024 and the Fed keeping rates on hold for the past 12 months. 10yr Treasuries are back below 4% as markets are pricing 95bps of Fed rate cuts across the remaining three meetings this year and 200bps of easing by next October.
In this context, investors will be keenly watching for signals on the timing and pace of rate cuts, especially from Fed Chair Powell’s speech at 10am EST (3pm LDN) on Friday. Our US economists don’t expect him to pre-commit to any particular rate cut trajectory but to signal that the Fed has gained sufficient confidence that it will soon be appropriate to begin easing policy, with rate cuts justified by both sides of the Fed’s dual mandate. They see rate cuts as likely to be framed as dialling back restraint, leaving the exact path data dependent. With r-star uncertain and policy risks evident following the election, rate cuts beyond the first 75-125bps are more uncertain.
Other scheduled Jackson Hole speakers include BoE Governor Bailey late on Friday and ECB Chief Economist Lane on Saturday. Ahead of this, we will also get the latest Fed and ECB meeting minutes on Wednesday and Thursday, respectively, which may offer some colour on the strength of the conditional September rate cut signals that both central banks sent at their July meetings. Elsewhere, tomorrow Sweden’s Riksbank is expected to deliver a second 25bps cut of its easing cycle, with markets pricing a c. 20% likelihood of a larger 50bps cut.
On the data front, this week’s main event will come with the flash August PMIs out in the US, euro area, UK and Japan on Thursday. Last month’s slippage of the US manufacturing PMI to below 50 (at 49.6) contributed to a rise in US recession fears that has since ebbed, while in the euro area activity surveys have consistently disappointed over the past two months. Another notable release will be Wednesday’s Q1 Quarterly Census of Employment and Wages (QCEW) in the US, which will provide preliminary benchmark revisions to the payrolls data. Our US economists see a negative revision as likely but, with this covering the period up to March 2024 that had seen particularly robust strong payrolls gains, any broader negative read-though may be limited.
Turning to politics, today will see the start of the US Democratic National Convention in Chicago, which comes as Kamala Harris enjoys a stabilising modest lead over Donald Trump in opinion polls for the November election. The FiveThirtyEight national average gives her a +2.6pt lead, with a smaller advantage on average across the swing states. Politics will also be in the headlines in Japan as on August 20 the LDP is due to finalise the schedule for its September leadership election. This follows Premier Minister Kishida's announcement last week that he would not run again, with our Japan economist addressing the implications of the change of PM in his latest outlook here.
Overnight in Asia, a weaker dollar is putting pressure on stocks in Japan and Korea, with Chinese equities outperforming. The dollar is -0.97% weaker against the yen this morning, touching the 146 level for the first time since 8 August, and is down -1.39% against the won, with the Nikkei 225 and the Kospi falling -1.68% and -0.61%, respectively. The moves are in stark contrast with a +1.06% jump in the Hang Seng, with the CSI 300 also advancing (+0.41%). Chinese assets will stay in focus amid tomorrow’s 1-yr and 5-yr loan prime rate decision. In US contracts, S&P 500 and Nasdaq futures are near flat overnight. Treasuries are also little changed, with the 2yr yield +0.5bps higher.
Recapping last week now, a US CPI print that was soft enough to affirm the disinflation narrative coupled with strong retail sales data served to cement a soft landing narrative. Friday’s data added to the general optimism, with the University of Michigan sentiment survey for August posting its first increase in five months at 67.8 (vs 66.9 expected) and the NY Fed services business index returning to positive territory for the first time since May, rising from -4.5 to 1.8.
With these data releases suggesting both a successful disinflation process and resilience of the US economy, equity markets were in a buoyant mood, with the S&P 500 rising +3.93% in its largest weekly gain since November 2023. Friday saw the S&P (+0.20%) extend its run to seven consecutive daily gains, its joint longest run this year. Tech outperformed, as the NASDAQ powered ahead by +5.29% (+0.21% Friday). The Mag-7 were up +6.23% as Nvidia stole the show with an +18.93% rally, its largest weekly gain since May 2023. Over in Europe, the equity gains were slightly more modest, with the STOXX 600 rising +2.46% (+0.31% Friday). Credit markets also benefited from the risk-on mood, with US IG spreads (-6bps) seeing their largest weekly decline since January.
In bond markets, Friday’s -4.3bps decline left 2yr yields little changed over the week (-0.3bps). On the other hand, 10yr yields retreated -5.7bps (and -3.0bps on Friday), to 3.88%. In Europe, 10yr German bunds saw a modest sell-off (+2.2bps) despite falling -1.5bps on Friday. Amid the risk-on mood and lower rates, the broad dollar index retreated -0.65% (-0.50% Friday) to its lowest level since January, with the euro closing above 1.10 against the dollar for the first time this year (+1.01% on the week to 1.103).
Lastly, in commodities, gold had a very strong week. Spot gold prices rose +3.16% (and +2.13% on Friday), moving above $2,500/oz for the first time ever. Oil whipsawed on the week, with a -1.58% reversal on Friday leaving Brent +0.13% over the week at $79.66/bbl.